British companies turn away business from eurozone as they fear they may not get paid

British firms have been turning away business from troubled eurozone countries, fearing that they may not get paid, the Bank of England says.

Turmoil in countries such as Greece, Portugal and Spain has scared off companies from signing contracts with potential clients, despite Britain being in dire need of fresh business.

Until now the focus has been on sliding demand from the Continent as a result of the troubles in the single currency area.

Credit risks: It is understood that business concerns are focused on the peripheral eurozone countries worst-hit by the crisis

But a report from the Bank’s agents –
its full-time regional officials – suggested that even when business
was available some firms had been making the decision to walk away.

‘Firms were increasingly wary of the credit risks associated with
selling in Europe,’ it said. ‘In response, an increasing number had
either tightened payment terms, or even refused orders where the risk of
non-payment was considered to be too great.’

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It is understood that business concerns are focused on the peripheral eurozone countries worst-hit by the crisis.
These worries are being experienced across all business sectors and throughout all regions of Britain.

Some firms are known to have been
demanding upfront payments and others have required payment for the
previous order before they were willing to arrange to make the next
delivery.

The agents’ reports follow long discussions with business leaders and other contacts right across the country.

Elsewhere, research by the Institute
of Directors shows firms feeling increasingly uncertain about the
prospect for exports to the eurozone.

In a 2010 survey of 1,000 member businesses, 58 per cent expected the
greatest demand for British exports to come from the European Union
between 2011 and 2016.

However, a similar survey carried out last month showed 50 per cent of
respondents now believed the biggest market for British exports over the
next five years will be Asia.

Only 43 per cent believe the greatest demand will come from the European Union.

A spokesman said: ‘Given that the
economic situation was already poor in 2010, this switch in expectations
shows how firms’ view of the eurozone as a trading partner has
shifted.’

The IoD survey will be published next
year.
In his Autumn Statement, George Osborne announced funding to allow UK
Export Finance – the trading name for the Government’s Export Credits
Guarantee Department – to provide up to £1.5billion in loans to finance
small firms’ exports.

It will focus mainly on deals worth £50million or less, but it is not
clear whether any of this will be available to help sales to other EU
countries.

At present, UKEF will underwrite exports to the EU only where more than
two years’ insurance is required. This tends to mean big projects such
as aircraft or infrastructure, rather than the sort of exports likely to
be offered by smaller companies.